Aug 27, 2015, 8:00 PM ETPanel, Webinar

Small Business Lending: Navigating the Current Environment

Bank of America reports an increased demand for financing among small businesses, creating a favorable environment where entrepreneurs have room to negotiate terms, pricing, and deal structures.
A FICO score above 700 significantly increases a borrower's leverage to secure better pricing and terms.
Traditional banking institutions look for a positive trend in financial statements extending at least two years into the future, typically requiring two to three years of tax returns.
The "camel's two periods" concept identifies the 32nd and 48th months as critical failure points; traditional lenders prefer businesses that have successfully navigated the first two years of the life cycle.
Interest rate hikes of 25 to 50 basis points (0.25% to 0.50%) result in minor payment increases (e.g., a $25–$30 difference on a $100,000 loan over five years) but may signal a strengthening economy that drives sales growth.
Entrepreneurs are advised to view rate hikes as a trade-off: paying slightly more for capital is worthwhile if the resulting economic strength leads to "mega sales" for the business.

Established businesses (2+ years) can secure vendor financing for equipment or establish lines of credit while performing well to ensure future availability.
Startups often lack access to traditional bank venues and may need to rely on personal resources, home equity, or high-risk/high-reward angel investors.
Separating business credit from personal credit via an Employer Identification Number (EIN) and incorporation is a critical step for established businesses to secure loans.
Millennials are significantly more likely than Generation X or Baby Boomers to utilize non-traditional funding sources, such as peer-to-peer networks and crowdfunding.
A blended portfolio financing approach is recommended, mixing traditional bank loans, equity, and alternative funding to meet diverse business needs and mitigate risk.

Reward-based crowdfunding functions as a pre-sale of products rather than equity or debt financing, requiring intensive marketing efforts similar to traditional campaigns.
Barbara Weltman warns that crowdfunding campaigns often fail to generate millions; success requires leveraging networks, working "the list," and providing tangible rewards.
Alternative lenders and high-APR options can trap borrowers in a "debt spiral" where refinancing is required just to service the original commitment.
The Responsible Business Lending Coalition has developed a "Bill of Rights" for small business borrowers to identify ethical lenders and avoid predatory practices.
Barbara Weltman advises entrepreneurs to avoid "fly-by-night" lenders, citing instances where solicitations claiming instant, massive funding (e.g., from offshore entities) are fraudulent.

The panel identifies three critical preparation steps: having ordered financial statements, knowing "real" (non-inflated) numbers, and securing mentorship or professional guidance.
Experts emphasize that "good debt" is borrowing used to grow the business (e.g., equipment, expansion), whereas "bad debt" is used for non-growth purposes or creates unmanageable servicing costs.
Steve Strauss and Joe DiNicola advise that entrepreneurs should establish relationships with commercial bankers early, even before the two-year mark, to secure connections for future referrals to investors.
Entrepreneurs are cautioned against treating capital as a "crutch"; having a clear, efficient plan for how capital will be used prior to raising funds leads to more successful growth.
Joe DiNicola highlights that seeking guidance from professionals or successful business owners is a sign of strength, countering the misconception that asking for help indicates weakness.